TotalEnergies vs. Greenpeace: Carbon Accounting—A Matter of Scope and Methodology

The report by Greenpeace “TotalEnergies’ Carbon Footprint: The Numbers Don’t Add Up”^[1] published last November raises serious questions about TotalEnergies' carbon accounting. In fact, the NGO estimates TotalEnergies’ carbon footprint at around 1,650 MtCO2e, or nearly 4 times as much as the figures reported by the company for its operations in 2019.
How can we explain such a difference?

Abstract

The very different scope of indirect emissions accounting explains the discrepancy between the figures reported by TotalEnergies and those reported by Greenpeace : 75% of the difference is due to the inclusion of a portion of trading activities^[2] ; 25% of all remaining indirect emissions. Although counting 100% of the emissions associated with trading activities may be justified, it makes sense to weight them differently from purely “physical” activities. This is what is proposed by Carbon4's methodology calculates financial value by weighting the emissions from various activities in proportion to their contribution to value added. As a result, emissions from trading are significantly reduced.

What do international carbon accounting standards say?

To begin with, let's recall that count the emissions A company's greenhouse gas emissions serve, among other things, to to measure its value chain's exposure to fossil fuels, and thus to highlight a “double materiality” of these programs. That is to say, both a share of the responsibility in global climate change, but also a link todependence, risk factor in a world that must drastically reduce its emissions to comply with the Paris Agreement.

That is why the international standard what is the GHG Protocol, request for take into account all significant sources^[3]greenhouse gas emissions over the life cycle of a company's operations. Therefore, we must count the direct emissions of the company (e.g., energy consumed in the factory or offices) as well as the indirect upstream emissions (e.g., extraction and processing of raw materials) and the indirect downstream emissions (e.g., energy consumption of products sold).

In the industry oil and gas, first come the emissions associated with the company’s “physical” activities: primarily, oil and gas extraction, his transportation, her transformation (e.g., oil refining), and the combustion oil and gas sold^[4]. Some companies also have trading activities. In other words, they buy and sell oil and gas that they did not produce. This is the case with TotalEnergies. A distinction can be made between "physical" trading, in which goods are physically exchanged and sold, and "financial" trading, in which financial assets are bought and sold with the aim of making a profit.

In this context, the GHG Protocol treats a company’s trading activities and “physical” activities differently. In fact, it states that Reporting of emissions related to trading activities is optional^[5] when physical activity is mandatory.

Three ways to count for three different results

Summary

What are TotalEnergies' plans?

TotalEnergies follows Ipieca’s guidelines^[6], a global association of the oil and gas industry focused on environmental and social issues, whose standards are validated by the GHG Protocol.

Methodology^[7] proposed by Ipieca recommends offsetting, at a minimum, the indirect emissions associated with the largest volume of energy in its value chain : the amount of energy extracted, the amount of energy processed (refining for oil, liquefaction for gas), and the amount of energy sold. In fact, this allows to avoid double-counting : For example, do not count the emissions from the combustion of extracted energy and from that same energy when it is sold twice.

Ipieca also notes that reporting on emissions associated with the purchase and sale of fossil fuels to non-end users, that is, the trading is optional.

In this context, TotalEnergies does not account for emissions related to trading, whether it involves physical exchanges or purely financial ones. Regarding the indirect emissions from its “physical” activities (emissions generated by other entities in its value chain to enable the sale of all of its oil and gas), TotalEnergies considers only those related to the combustion of oil and gas^[8], by accounting for the largest share of energy in its value chain—namely, that corresponding to sales of oil and gas products (3.1 Mboe/day)—in accordance with IPIECA’s recommendations. Although these combustion emissions account for more than 80% of “physical” indirect emissions, emissions related to the purchase of products and services, transportation, or end-of-life treatment of sold products—such as plastic—remain significant in absolute terms and are therefore not disclosed in the annual report.

What does Greenpeace stand for?

In addition to combustion emissions from oil and gas sold (reported by TotalEnergies) using the same methodology as that proposed by IPIECA, Greenpeace takes into account all other sources of indirect emissions (emissions associated with oil and gas that is sold but not produced, transportation, end-of-life treatment of sold petrochemical products, etc.) as well as "physical" trading activities, but not those related to "financial" trading.

This difference in scope explains the discrepancy between the figures from TotalEnergies and Greenpeace: 75% of the difference stems from the inclusion of a portion of trading activities; 25% from a broader scope for “physical” activities, notably including all significant indirect emissions^[9].

Greenpeace thus places “physical” activities and trading on the same level of responsibility because “TotalEnergies’ greenhouse gas emissions are all emissions to which it contributes or for which it is responsible.”

What does Carbon4 Finance do?

This last interpretation makes sense, insofar as it characterizes a company’s dependence on greenhouse gas emissions, also known as transition risk. On the other hand, it lacks nuance because these two types of activities are based on different rationales physical and operational profoundly different.

Carbon4 Finance^[10] captures these nuances in its methodology Carbon Impact Analytics. The approach involves weighting the emissions from an activity (e.g., trading, mining, or selling) by its share of value added in the value chain. This offers two advantages. First, it allows us to understand the contribution of each of the company’s activities to its emissions, and, second, the company’s dual materiality (responsibility and dependence) is better represented because no activity is overlooked.

To illustrate indirect emissions associated with the downstream combustion of oil and gas, these emissions are calculated on an intermediate basis across all stages of the value chain: production, trading, transportation, refining, distribution, storage, and sales. The figures cited by Greenpeace are, in fact, of a similar order of magnitude to these intermediate calculations used in the methodology Carbon Impact Analytics. Next, each emissions category is adjusted: emissions are prorated based on the share of value added by the company’s underlying activity within the value chain. This yields a representative measure of emissions by category while avoiding double-counting. Emissions associated with trading activities are thus significantly reduced.

Conclusions

This controversy is a case in point, Carbon accounting is gaining prominence in public discourse. From now on, companies, investors, governments, NGOs, All stakeholders use the same grammar to understand these fundamental issues.

The first issue is that of the transparency. All stakeholders are calling on companies to disclose information about their activities with the greatest possible accuracy and detail. In this regard, TotalEnergies’ competitors still take a variety of approaches. On the one hand, ExxonMobil publishes its accounting methodology in great detail indirect emissions. On the other hand, Shell goes far beyond the Ipieca recommendations in publishing 100% of its emissions related to the sale of products as part of its trading. Players in the oil and gas industry have recently made progress in terms of transparency, but there are still areas for improvement as evidenced by a comparison between them.

The availability of accurate financial figures, whether financial or climate-related, is not than the first part of the work. Next comes a time for discussion and debate to assess the company's merits in light of climate challenges. That is indeed the most important point, and we must not allow an artificial technical debate to arise over scopes and orders of magnitude even though the common tools for reaching an agreement already exist.

Let's keep in mind that Counting just for the sake of counting serves no purpose. Beyond the difference in scope, which explains the discrepancy in the figures, the key issue lies elsewhere. Above all, this means adopting a transparent and ambitious approach to climate change. The Paris Agreement calls for reducing our greenhouse gas emissions by 5% per year.. No miracles, Fossil fuels must follow the same path. And there is room for doubt when it comes to the oil industry as highlighted in Carbon4 Finance’s sector review: “The oil industry: is it up to the climate challenge?”^[11].